If a shareholder, member or partner in your business were to die, could you afford to purchase their share of the business? If not there could be implications. Shareholder Protection can help protect your ownership in the future.

Shareholder Protection Insurance allows the remaining partners, directors or members of a company to remain in control of the business following the death of a business owner. In the event of the death of a business owner or if they are diagnosed with a terminal illness or specified critical illness, shareholder protection can provide a lump sum to the remaining business owners to allow them to purchase the deceased partner, director or members interest in the business.

If a business owner dies with no share protection in place, his or her share in the business may be passed to their family.This means that the surviving business owners could lose control of a proportion or all of the business. The families may choose to be involved in the running of the business or could even sell their share to a competitor, a Shareholder Protection Policy can help avoid these issues.

In practice, all partners/directors/members are insured with a life assurance policy equal to the value of their stake in the business. The policies are written under Trust for the other business owners, with all business owners as Trustees. Each signs a Cross Option Agreement, which is a simultaneous put and call for the transfer of shares on a specified event. So if one partner dies the life assurance would pay the stake to the surviving owners of the business, which would be split between them to purchase the share of the business from the deceased’s estate exercising their option. This ensures that the surviving owners retain control of the business and the deceased’s family can realise the cash value of their share of the business.